$2 Trillion Credit Contraction as Consumer Debt Defaults Soar
Interest-Rates / Credit Crisis 2008
Jun 21, 2008 - 02:44 PM

By: Mike_Shedlock

Credit is drying up everywhere. Banks are now concerned (finally), about rising credit card debt. They have every reason to be. The bankruptcy reform act of 2005, which encouraged such reckless lending is now blowing up in lenders' faces.

Banks and credit card companies wrote that bill. They got everything they wanted. It goes to show you two things:

1) Be careful of what you ask, you might get it.
2) Greed kills.

Furthermore, I expect many of the debt slave provisions of the bill to be undone after Obama is elected. That will increase defaults. Even if an unwinding of that "reform" does not happen, the writing is on the wall for lenders for the simple reason "You cannot get blood out of a turnip".

Regardless of what the law says, unemployed people are not going to be paying credit card bills. A second point is that someone unemployed, with no income, will meet the strict guidelines for wiping away all their debt.

I talked about this in Bankruptcy Reform Act Finally Blows Sky High.
http://globaleconomicanalysis.blogspot. ... s-sky.html

Banks have finally beginning to get the bleak message that credit card defaults are going to soar. In response, Banks are Trimming Limits for Many on Credit Cards. http://www.nytimes.com/2008/06/21/busin ... ref=slogin

The easy money that led Americans to depend on credit cards to pay their bills is starting to dry up. After fostering the explosive growth of consumer debt in recent years, financial companies are reducing the credit limits on cards held by millions of Americans, often without warning.

Washington Mutual (WM) cut back the total credit lines available to its cardholders by nearly 10 percent in the first quarter of the year, according to an analysis of bank regulatory data. HSBC Holdings, Target (TGT) and Wells Fargo (WFC) each trimmed their credit card lines by about 3 percent.

Among those four lenders, that amounts to a reduction of about $15 billion in three months. Over all, the amount of available credit for the industry appears to be about flat, with the three biggest issuers — Bank of America (BAC), JPMorgan Chase (JPM) and Citigroup (C) — slightly increasing their overall credit lines. But even they are trying to rein in risky individual accounts.

“This downturn is the perfect storm where the consumer is getting squeezed from all levels,â€